Raja Teh Maimunah is the CEO of Hong Leong Islamic Bank and an Advisor for Islamic banking and finance to the WIEF Foundation. She spoke with The Prospect Group about her role with the WIEF Foundation, how Islamic finance is a catalyst for economic growth, and her outlook for the Islamic banking and financial service sector.

Raja Teh Maimunah

In what capacity are you an advisor to World Islamic Economy Forum (WIEF)?

TEH: I'm an advisor on Islamic banking and finance for the foundation, the WIEF Foundation. Essentially what I have to do is to engage different parts of the markets, to look into the possibility of embracing Islamic finance in support of a greater Islamic economy. So the World Islamic Economic Forum Foundation is really about promoting the Islamic economy and the improvement of the Islamic economies in the greater context of the global markets. So for any economy requiring funding, the funding of the Islamic economy is the bit where I come in. I advise government, teach, and educate different parts of the world about how Islamic finance is being done, or how they can, or what they can do to include Islamic finance into their main financial system. So a lot of it is really conversations with different governments, largely governments, but also encouraging entrepreneurs and companies to look at Islamic finance as an alternative means to funding because by doing that, then we get greater traction across the globe, including Islamic countries. Therefore, that is the objective of WIEF really.

How is Islamic finance a catalyst for global economic growth?

TEH: Let's take the world today, a third of the population is Muslim. If you take the number of countries whose Muslim population are predominant or are dominant, there's a fair bit of them, I can't remember exactly how much. So let's take from the fact that a third of the global population are Muslims. A lot of them cannot subscribe to interest-based banking. So that's an exclusion of a lot of people. So say if now you're selling to two thirds of the universe, but with Islamic finance coming into the picture you can have a bigger audience.

Let's take the Halal industry. You may know that companies like Nestle, have made the decision to go Halal globally. And I guess the reason for that, and I read the statement by the CEO was, "If we could only say, sell to six people before, now I can sell to ten." It just makes more sense because non-Halal products, Muslims can't consume, but Halal products everybody can consume.

So it's no different than Islamic finance. So, if you embrace something that a bigger pot can subscribe to, you just have a bigger audience and therefore you, in terms of sheer volume, you'd get the numbers in. So inclusion is critical, which means it also extends to what one would call the emerging markets; a number of the OIC countries are emerging markets. Especially for countries where you know growth rates are like one or two percent, or even negative, they'd have to move into these emerging markets because that's where the growth, the trajectory is.

In terms of markets and regions, what is your growth outlook in this respect?

TEH: If you look at some parts of Asia, we are already deemed to be about 5% or 6%. But some of these other countries are still seeing double digit growth because they're young. If you look at countries like Indonesia, Pakistan, and Bangladesh, they're countries with huge numbers of people, and they're all Muslims; they're all Muslim countries. So if you can provide Islamic financing to their trade activities, that would just extend your own reach. So if say you are a manufacturer in the UK and you want to sell to somebody in Bangladesh or Indonesia, if you could have those kind of trade facilities done via sharia compliant means, you would have as I say greater reach, greater audience, greater people to sell to.

So the brand Halal doesn't just go towards food consumption, a lot of multi-nationals are aware of this so they're moving, they're shifting. You'll see Kraft and Nestle putting Halal on their products. So they could get greater reach. So likewise, financing is exactly the same. If you can put a Halal stamp on your financing products you can go a lot further. So those European banks or American banks who right now are only focused in their markets, they could come out to these emerging markets. I'd say the growth prospect in those countries is greater being emerging markets. So I believe that really when you talk about a catalyst here in Southeast Asia, who's the biggest economy? It's Indonesia. And in Indonesia Islamic finance is growing five times faster than their conventional banks. Just look at Malaysia, our growth rates on the Islamic finance side is three times that of the conventional banks.

Are these people totally not included in the traditional banking system?

TEH: Well, there are X-amount that have never come through the system at all. Even in Malaysia, one would think that if they don't have a choice they would have to subscribe to the conventional financing products. You'd be rather surprised that they have not come into the system. I've seen this in big countries like Indonesia and Bangladesh and Pakistan; where they were completely outside. They had their own little system, you know people find their way to do things, because for the Muslims it's a greater cause. It's not something nice to have. On the scale of things that you absolutely must abide to, this is actually very high on the list of things, interest-based banking is something that you cannot do. If I may say that many people are not aware of this, that there's only one thing in the Quran that talks about waging war against God. Only one thing, and it's actually usury, only usury and nothing else.

So if you take that and understanding the philosophies of it, a lot of people then have stayed out on the sidelines. So some people say, "Is it a cannibalization of markets? You know they're already here and you're introducing something new and it's just a replacement." I would yes to a certain extent. You know some of us have had no choice so we've had to use it. But the net will be bigger, then you can actually cast a bigger net and catch wider. But more importantly if you look at places which are really underserved from a financial perspective, some of the OIC countries have a lot more room to grow, some of them don't even have a conventional banking system to begin with. So these are markets I think we should reach out to.

The biggest growth area just a couple years ago was the BRIC countries. Now people are moving to Africa. So the world isn’t that big, you kind of take turns as to who's making that mark. I'm just saying that I think a lot of people may have underestimated Muslims’ spend. If you look at the total amount spent by the Muslims just last year alone, it was almost two trillion dollars. This is just trade and commerce; two trillion. So that's a good space to get into. If you just look at it purely from a commercial perspective, if you do something that they can buy, they will get on board.

Where do you see opportunity for innovation and partnerships in Islamic banking and financial services?

TEH: Actually, there's lots to go, especially in today's world with digital payments. WIEF is presenting this, we're providing a platform for people with ideas. It's called the Idea Pad, and so if you have an idea you're given 15 minutes to go and pitch your ideas and investors are there to hear you out if you've got a good idea and an investor likes it, he'll put money in. The whole change into a digital economy globally, I think provides an even greater opportunity than before because it allows you to reach to places that you otherwise could never reach physically.

If you look at places which are really under-served from a financial perspective, some of the OIC countries have a lot more room to grow, some of them don't even have a conventional banking system to begin with. So these are markets I think we should reach out to.

So if you look at some markets in Africa. Everybody has got a mobile phone, but the banking penetration, let's just take Nigeria, banking penetration is less than 30%, but mobile phone penetration is at 140%. So you could start introducing financing services through mobile phones. So mobility and online access to financial means now become real. Generally people think of the Islamic economy as being rather backward. And this is when I say, probably remind everybody that 1,400 years ago Islam was at the forefront of innovation. So it is time for the Islamic economies to come back and embrace its DNA on innovation. With that innovation, the digital economy actually facilitating the break down of borders, I think the whole theme is apt because this is the right time.

Do you see additional Islamic financial service centers as competition or something more positive?

TEH: Actually, we don't have enough Islamic financial service centers to compete with, to start with, we don't have enough Islamic financial centers in the world. So I actually welcome Dubai's initiative, I really do because you can't make this international, you can't globalize this industry, if you're the only player, if you're so domestic and everything is so domestic-centric, and today that is largely how it is.

If you look at the $2tn Islamic banking assets, the truth is 90% of that sits in only six countries. So there's 57 of us in OIC. And yet six of us make up the 90%, which means it's very much domestic driven. So in Malaysia where we have the highest number of Sukuk; including Iran, we're third largest in terms of Islamic banking assets. But it's largely Ringgit. So you have Iran topping it and then you have Saudi, and as you know Iran is very domestic and so is Saudi, everything is in riyal.

We're all insular; we're all individually in insular markets. So if you want to make this mainstream, we actually need to ensure that there is a cross border linkage. To have a linkage, I have to have counter party somewhere else. Otherwise, I won't be able to trade with someone else or do my money markets trade with someone else. And it's not just Islamic countries so I also greatly welcome London, for instance, and Hong Kong and Singapore because these are established financial centers and they saw it, they got the plot. At the end of the day if you want to be a financial center, and you want to remain relevant, you would have to extend your services to include the one third of the world’s population that is Muslim.

What are your outlooks for Islamic banking globally?

TEH: If you take on the world stage, that is really exciting for me. I mean the UK's announcement, the UK's issuance and more recently Hong Kong's issuance and Luxembourg has gone on the roadshow now. They have just passed through so they're closing their books. We hear South Africa, we hear so many other countries that actually want to do this and you think, "Why?". And really from a government's perspective, from a sovereign’s perspective, if each of the sovereigns come into this market, they will have access to a bigger pool of funds; that's it.

So if you look at all of the funds sitting in Saudi or Qatar or Malaysia that can only invest in sharia compliant papers, and so if you come to the market with that, you will have access to monies that you never would before, and you would be able to diversify your investor base. I mean, for us on the capital markets team, whenever you go out and distribute, it's usually same-old, same-old guys. But if you come into the Islamic market you're really seeing investors, new investors for the first time, and you have a lot of these Islamic funds, you know, the Islamic fund business, the mutual funds business, they cannot invest in conventional bonds.

So that is encouraging. I mean we spend a lot of time, all of us at WIEF, individual proponents of the industry, talking to different markets, but this year everybody's kind of come together, you know? And well Goldman is very brave to try again, and I think it's a big step for an American bank to do that. I'm excited and actually Société Générale attempted to go into the market as well. So approvals are in place, they're just looking at pricing at this point in time.